Telcos take on new services

22 Jun 2005

Technology industry analysts have been saying for some time now that telcos are going to have to look to new income streams to replace the bumper revenues generated by voice traffic in the Eighties and Nineties. Cynics might suggest this explains the move to become systems integrators as much as network operators. But clearly there is much more at play here than simply replacing voice revenues.

Technology has certainly played into the hands of the telcos. Back in the day, IT and communications were separate disciplines that used a very different set of technologies.

“Corporate networks were built by in-house specialists that gave you a lot of control but lead to issues around integration and retaining the skills of your specialists,” says Mike Davidson, head of managed services with Eircom. “As internet protocol (IP) networks are becoming the platform of choice — although not for all cases — it means you have end-to-end commonality and you can prioritise traffic because you understand the traffic profile. Voice is becoming just another network service.”

This has led to a blurring of the communications and IT roles in organisations with the former generally being subsumed into the latter. It has also raised an interesting contradiction– IT equipment has become commoditised but at the same time IT managers are expected to manage at a much higher level. They need to understand business issues and ensure the IT function is aligned with the business needs.

As Davidson puts it, IT has become “mission critical but non-core”, which is why both Eircom and BT Ireland have been busy talking up their managed services capabilities. With both owning and operating some of the largest data centres in the country they have the infrastructure in place to take on some or all of their clients’ IT infrastructure or applications, leaving in-house IT staff to concentrate on strategic issues.

It’s no surprise that managed services is one of the core competencies of LAN Communications, an IT-centric Eircom subsidiary that recently subsumed Eircom Business Systems in a further sign of the times.

BT Ireland manages part of the biggest outsourcing deal ever in Ireland — Bank of Ireland’s handing over of its IT and communications to Hewlett-Packard (HP) — and while Gary Cobain, general manager for solutions with BT Ireland admits such mega deals are few and far between he sees them as part of a wider trend.

“There is a drive across the commercial and government worlds towards services,” says Cobain. “They are not buying technology but a service with a service level agreement (SLA) wrapped around it. With our shared services platform — which includes applications and storage area networks — we can do that from our data centre. As a telco we have the network access as well and have full control over that. Anyone can provide an SLA on a box but it’s very different giving an application guarantee over a network.”

This capability has enabled BT to partner with IT players such as IBM and HP on managed services contracts, as they see the value of having a network operator in on the deal. However, Cobain is keen to stress that BT is just as likely to be the prime contractor on such deals given its technology skills — most recently boosted through last year’s acquisition of Belfast-headquartered consultancy BIC Systems.

Davidson expects the role of “prime contractor” — which he defines as the organisation that “is in front of the best of breed providers, manages the SLAs and drives performance” for the customer — to become much more common.

Perhaps even more than Eircom, BT has always talked up its ICT capabilities and has made many acquisitions of systems integrators over the years. In contract Eircom has built up its capabilities in a very different manner — largely through its in-house management of some of the largest networks and IT infrastructure in the country. Being the incumbent telco has given it unparalleled experience of managing large-scale networks, IT and communications components — rivalled only by the experience of BT in the UK.

“We need to play to our strengths but we also need to be realistic,” says Davidson. “Will telcos go into software development? No, it’s not our core business and doesn’t logically sit with what we do. Do we start running ICT infrastructure for customers? Yes. We have one of the biggest infrastructures in the country ourselves, only AIB is bigger. We have built up a scale and skills around managing this so it’s a logical extension and where we will focus as we move up the value chain.”

Does all this mean the end for systems integrators that don’t own networks? Will the telcos start mopping up the traditional IT players? Not any time soon — if anything traditional systems integrators and telcos will work together in fluid alliances for the foreseeable future. Even the telcos don’t have rose-tinted glasses on when it comes to their ability to act as a one-stop shop for all technology and communications needs.

“We are not there yet in the Irish market,” says Cobain. “For example, the Government still produces an awful lot of tenders at the technology level. They buy commodity components at a good price but you can’t get an SLA end to end if you buy that way. Customers are now looking at getting SLAs up the value chain right up to application level. They want to get the infrastructure as part of the overall deal.”

Which basically means as this trend spreads telcos will be in a stronger position to win managed services deals themselves or become the prime contractor as the IT shops get on with the grunt work. It should prove interesting to see how long such unevenly balanced relationships can be maintained.